Will a Letter Help Your Loan Get Approved?
Sometimes getting a loan is as easy as filling out an application. But as dollar amounts increase or the situation gets more complicated, lenders may want reassurance. They could even ask you to explain why your loan is a good idea.
If your bank wants more than just the basic information that goes on an application, a letter to the bank could be in order. Some banks specifically request letters, while others might appreciate any extra steps you take to try and win the loan.
So, what should you include in your letter? Read on for some sample text and an overview of what the bank is looking for.
The Details, in Plain Language
Your loan letter explains exactly why the lender should approve your request. Written in plain language, it gives you an opportunity to add some commentary on topics that do not appear in a standard application. The challenge is to find the sweet spot between keeping things brief (lenders don't have all day to read your story) and providing sufficient detail to make a convincing argument.
If you want to provide more details, don’t worry: You’ll probably submit a business plan with your loan application. Think of your introductory letter as an abbreviated version of the business plan.
Who you are: Tell the bank a little bit about yourself, putting your best foot forward, of course. If you're applying for a business loan and there are multiple partners, be sure to include information about the whole team. Highlight any strengths, designations or credentials you've earned, and relevant successes in your past. Don't go overboard. Just pick just a few of the most impressive things that come to mind.
What you want: Ask for a specific amount of money with a specific timeframe. For example, you might request $100,000 to be repaid over five years.
Why you want it: Explain exactly how you will use the funds. Your lender needs to know that the money will be put to good use. For example, you might use financing to purchase a vehicle (which allows you to put a second service technician out in the field, thereby doubling your ability to serve customers). Be sure to include details regarding how the investment will pay off. If you know specifically how your revenues will increase, provide that information. If you have been turning away business because you didn't previously have capacity, let your lender know about this unmet demand and your ability to satisfy it. Demonstrate that you have done some market research.
How you intend to repay: Where’s the money coming from? Your lender needs to know how you’ll fund the repayment, whether it’s from your salary or increased revenues. Again, be specific about how and why your earnings will increase as a result of the loan.
Sample Outline for a Simple Letter
Don’t obsess over the exact order or wording of your letter—just aim for a document that helps your lender get to know you.
Keep it simple and provide the basic information your bank needs. The lending decision ultimately depends on the financials: Your credit scores, your income and ability to repay, any personal guarantees you make on the loan, and any collateral available to secure the loan.
- Overview of your company, if applicable: “ACME Enterprises specializes in… and has been in business since 2007...”
- Your reason for the letter: “I’m writing to request a loan for $100,000…”
- Overview of you and your team, if applicable: “ACME Enterprises was founded by Jane Doe, who has over 10 years of industry experience... The Marketing team is led by John Jones, who previously helped grow XYZ Corporation to…”
- How you’ll use the funds: “Our goal is to increase the number of daily service visits by purchasing an additional vehicle and related equipment. The total cost of these investments is…”
- Why the loan will pay off: “Currently we are unable to respond to 30% of requests for service, which results in customers calling our competitors or switching products. We will be able to profitably respond to all of those calls with the additional equipment…”
- Basic financial information: “ACME Enterprises currently operates at a profit. Revenue from the previous year was $X, and net income was $Y…”
- Anything else that shows you’ve done your homework and deserve the loan
- Open the door: Let them know that additional details are available (“Please see the enclosed business plan, and feel free to contact me with any questions you have at 212-555-5555…”)
After writing a draft of your letter, let it sit for a day or two, and give it a second review. Then, ask a friend or colleague to proofread the document—a second set of eyes may spot embarrassing errors and opportunities for improvement that you’ll never notice on your own. Even if your writing isn’t perfect, the goal is to appear professional and competent in your business.
You might find that your letter doesn’t sound too impressive, and that’s okay. If you can’t claim any major successes (like “we’ve grown profits by 6,000% year over year”), just do your best to sell yourself and avoid exaggeration and dishonesty.
Lying probably won’t help you get approved, and it can lead to legal problems down the road.
In fact, go ahead and acknowledge anything that might be an issue, and explain why it's not as bad as it looks. Your lender will surely notice if you have bad credit or insufficient income to repay the loan. Addressing those issues signals that you're a serious borrower who understands what's at stake.